Less than 6 months after Elon Musk seemingly crashed the market with his tweets, the price of bitcoin is once again soaring towards an all-time high. This narrow timeframe has been unexpectedly productive – a nation state has adopted BTC as legal tender, mining Bitcoin has successfully changed its epicentre from China to the United States of America, the Lightning network got bigger and more decentralized, sidechains like Liquid and RSK have developed more use cases, and a handful of low time preference institutional investors have finally understood the inflation-hedging role of Satoshi Nakamoto’s money system.
After all of these disparate, disjointed, yet harmonizing efforts, it feels like years since “butter fingers Elon” was the meme which justified the selling pressure. Because in only a few months, we underwent the equivalent of an entire 4-year market cycle.
As a matter of fact, I can argue that we have successfully boosted the resilience and value proposition of the Bitcoin network to a greater extent than we managed to do during the 2014-2017 and 2018-2021 bear markets. The code got more robust, the scaling solutions (layers and sidechains) have gained a lot more traction, the education and advocacy have reached new stellar levels, and the conviction of miners and node operators has showed nothing but commitment to the mission of the Bitcoin project. Being a bitcoiner has never been safer and easier.
For what it’s worth, even the mainstream media coverage has become more nuanced – though still adversarial and sensationalistic for the most part, there seems to be an increasing number of voices who portray Bitcoin as a legitimate financial project which is now part of our daily lives.
The Bitcoin supercycle scenario seems more likely than ever
As I’m writing this article, BTC comfortably hovers above the $61000 threshold – which means that we’re inching yet another all-time high. The fact that the market once again holds bitcoin in high regards only contributes to the “supercycle” thesis: the idea that, unlike previous moments from Bitcoin’s existence, the excessive hype won’t be followed by another multi-year bear market. Instead, we’ll most likely see lesser significant corrections which make room for a perpetual state of celebrating new record highs every few months.
Yes, bitcoiners have also used the “this time it’s different” argument in 2013 and 2017. But due to all the political and economic phenomena that we see on a global scale, the case for a supercycle is a lot stronger.
During Bitcoin’s previous capitulation moment in December 2018, governments and central banks were still reporting inflation numbers within the planned limits. At the time, institutional investors still regarded BTC as a highly speculative asset whose risk-reward ratio doesn’t justify the gamble. Also, the scalability prospects of the network were still unclear, as solutions like Lightning and Liquid still seemed reckless and difficult to use.
As of 2021, all the stars are aligned for Bitcoin’s success. Not only that we find ourselves near the “Chancellor on the brink of second bailout for banks” moment, but now we have also benefit from the network effects and the involvement of millions of community members. Developers, businesses, educators, entertainers, and investors put a lot of their time and energy into promoting this fair, transparent, and predictable money system that no government or individual can taint.
Just think about the rapid migration of Bitcoin miners. After getting kicked out from China, they found refuge in the United States of America. It was a smooth transition which only took a few months – and through it, an entire subclass of FUD has been permanently obliterated.
Remember when China banning Bitcoin mining was a potentially fatal scenario? When it actually happened this year, it wasn’t an existential threat to the network. Instead, it became an opportunity for economic actors across the global energy market. Geopolitical game theory at its finest.
While politicians from Beijing have decreed against the decentralized money system which competes with their upcoming central bank digital currency (CBDC), investors from the United States of America have become interested in purchasing the mining equipment and migrating the logistics in their backyard. Today, the USA is the country which produces the most hashrate to secure the Bitcoin network.
Now we’ll never go to a conference where Nouriel Roubini brags about having met the Chinese guy who controls most of the Bitcoin hashrate. We won’t be hearing about China controlling Bitcoin anymore. The free market has spoken and mining will continue in the free world. And at least for a while, we won’t have to feel concerned about Bitcoin mining issues that can crash the price of the currency.
Within the same 6-month timespan, El Salvador has gone from announcing that it would use BTC as legal tender to quickly putting the adoption into practice. And while central banks worldwide have reported higher inflation rates, institutions found ways to hedge with bitcoins (on October 16th 2021, the SEC has even approved ProShares Trust’s Bitcoin Futures ETF).
Bitcoin could only be evaluated below its previous all-time high for a few months. And it’s not like the recovery was obvious to anyone following the news: the price has crashed multiple times due to negative statements coming from China, Europe, and the United States of America. Even the private sector has added up to the FUD, with JP Morgan Chase chairman and CEO Jamie Dimon declaring that “bitcoin is worthless”.
In spite of it all, the price of bitcoin has remained within a bullish range. We didn’t get the usual 90% correction and market capitulation. And even though the mainstream media obituaries continued to get published, the investors didn’t sell. Even when the price is low, the conviction keeps the demand up and there’s always someone on the other side of the world who will gladly buy the dip.
For now, it seems like the quality of bitcoin holders has improved all across the board – as the time preference of new investors also extends beyond retail speculation. The name of this new game is called beating inflation, and a successful operation requires holding with great conviction for at least a few years. It seems like this decentralized money system has finally found its truly unique use case. And it’s also why I believe that we might see a super cycle.
Yes, this time it’s different. But don’t take financial advice from the guy who assembled the pieces of this puzzle in order to reach a subjective conclusion. Instead, look at how successful individuals and financial institutions choose to protect themselves from the consequences of inflation.
And if you enjoyed this article, check out the price prediction I’ve made back in January 2021, when I presented 10 reasons why we’ll very likely hit $100.000 by the end of the year. Keep in mind that the events from the last 6 months weren’t priced in at the time.
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